Target Date Funds: What’s Under the Hood?

Source: Edwin J. Elton, Martin J. Gruber, Andre de Souza and Christopher R. Blake, Center for Retirement Research at Boston College, IB#17-2, January 2017

The brief’s key findings are:
• While nearly 60 percent of new 401(k) participants have savings in target date funds (TDFs), little research has looked under the hood of this investment vehicle.
• This analysis uses a unique dataset with extensive information on the underlying mutual funds that TDFs hold.
• The results show that TDFs:
• often invest in specialized assets (e.g., emerging markets and real estate);
• charge fees that are only modestly higher than if an individual investor assembled a similar portfolio on his own; and
• earn returns that are broadly in line with other mutual funds.
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